On Friday, UBS analysts, led by Batya Levi, adjusted the price target for Warner Music Group (NASDAQ:WMG) stock, bringing it down to $41.00 from the previous $43.00. Despite the reduction, the firm maintained its Buy rating on the shares. With the stock currently trading at $29.30, significantly below analyst targets ranging from $23 to $44, and an RSI indicating oversold territory according to InvestingPro data, investors may find current levels intriguing. Levi cited foreign exchange (FX) pressures as a factor that could obscure the company's strong start to the year.
The UBS analyst anticipates that Warner Music Group's sentiment will improve in 2025, driven by high single-digit subscription growth, stable or increasing streaming share, and potential gains from the introduction of a premium tier in the first half of the year, as well as digital service provider (DSP) price increases in the second half.
The company's current gross profit margin of 47.8% and revenue growth of 6.4% over the last twelve months support this optimistic outlook. However, Levi noted that recent FX movements are expected to impact short-term trends and might affect management's guidance for a 100 basis point improvement in margins for the year, with UBS's estimate being a more conservative 40 basis point increase.
Levi has slightly lowered the F1Q25/25 estimates for Warner Music Group to account for the weaker FX impact. Revenue for the first fiscal quarter is projected at $1.7 billion, marking a year-over-year increase of 3% on a constant currency basis, compared to a 6% rise in the previous quarter. The core operating income before depreciation and amortization (OIBDA) is expected to be $374 million, up 1% year-over-year, with margins showing a slight decline of 20 basis points to 22.2%.
The analyst's commentary reflects a cautious but still optimistic outlook for Warner Music Group, as the company navigates through the challenges posed by FX volatility. The maintained Buy rating suggests that, despite the near-term headwinds, UBS continues to see the stock as a favorable investment opportunity.
In other recent news, Warner Music Group (WMG) has been the subject of several analyst revisions due to foreign exchange impacts, restructuring efforts, and a tepid streaming outlook. Guggenheim analysts adjusted their 12-month price target to $40 from $44, maintaining a Buy rating, due to the impact of a stronger U.S. dollar on the company's earnings estimates. Despite this, WMG's revenue grew 6.4% over the last twelve months, reaching $6.43 billion.
Loop Capital lowered its price target for WMG by 8%, maintaining a Hold rating, reflecting the company's restructuring plan anticipated to save $260 million in pretax expenses. Meanwhile, Goldman Sachs reduced its price target from $40.00 to $37.00, maintaining a Buy rating, due to a slowdown in Recorded Music Subscription Streaming and Ad-supported Revenue growth.
Barclays (LON:BARC) also revised its assessment of WMG, reducing the stock's price target from $32.00 to $31.00 but maintaining an Equalweight rating.
In addition, WMG has amended its CEO's compensation structure, transitioning from performance share units to restricted stock units.
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